News eDaily24 Aug 2017

Australia:IAG posts US$1 bln in insurance profits for FY17

24 Aug 2017

Australian insurance giant, IAG, yesterday announced insurance profits of A$1.3 billion (US$1.03 billion) and a reported insurance margin of 14.9% for the financial year ended 30 June 2017 (FY17), a 6.8% and 60 basis points (bps) respective increase on FY16.

This improvement was driven by higher than expected prior period reserve releases, partially offset by a natural peril claim cost increase which resulted in an allowance overrun of over A$140 million.

Gross written premium grew by 3.9% to A$11.8 billion, with like-for-like growth in excess of 4%. This was driven mainly by higher rates on short tail motor in response to claims inflation as well as continued momentum in IAG’s Australian commercial rates.

IAG’s underlying insurance margin, its preferred business performance measure, fell by 2.1 percentage points to 11.9%, which included the adverse impact of higher claim costs in its short tail motor businesses in Australia and New Zealand, and elevated large losses in its commercial classes. An additional factor was the increase in IAG’s natural peril allowance in FY17, which accounted for a third of the underlying margin decrease.

Net profit after tax increased 48.6% to A$929 million and included a significantly higher contribution from investment income on shareholders’ funds which reflects stronger equity markets.

IAG Managing Director and CEO Peter Harmer said the company was on track in its work to strengthen the overall performance of its businesses.

“Today we delivered a sound result, bolstered by improved investment markets and higher than originally expected reserve releases from our long tail business.

“Overall GWP growth reflects positive momentum in our commercial business and rate responses to claims inflation, particularly in our short tail motor insurance businesses in Australia and New Zealand.”

Mr Harmer added that the company was well-advanced with its plans to address the rising cost of claims.

“We have a number of initiatives underway that look at how we can reduce the cost of managing claims in a way that creates affordable insurance options for customers both now and into the future. We expect these initiatives, which are being created in consultation with our customers, to be finalised in the first half of the 2018 financial year.”

Strategy update

Mr Harmer said the company was focused on its three strategic priorities – customers, business simplification, and people and business agility – which are being brought to life through its leading and fuelling themes.

“Leading has our customers at the core and aims to make the experience they have with us world class, through technology, smart ideas and the way they interact with us.

“Over the year we’ve refined how we work with customers on product and experience design; empowered our frontline people to solve customer needs in real time; and provided excellent experiences around claims and repair. These have all contributed to a steady increase in our net promoter scores across our brands. 

“We recently opened our new Sydney-based innovation incubator, Firemark Labs, following the successful launch of our insurtech hub in the emerging global technology hotspot of Singapore. 

“Both Labs are supported through our A$75 million new ventures fund, Firemark Ventures, and combined they create a powerful products and services innovation pipeline, and the opportunity to leverage the insights and experience of our external partners to design new customer experiences. 

“We’re on track in partnering with global experts to simplify processes and reduce complexity, and advanced on our work to reduce our 32 policy and claim systems to two. We have started work on rationalising our product range from 1,500 to just over 400; and on 1 August 2017, following court approval, consolidated our Australian insurance licences from nine to two.

“We took a significant step in July to simplify our business when we created one Australian business, headed by Mark Milliner as CEO Australia. The Australia Division brings together the Consumer, Business, Satellite and Operations divisions with responsibility for customer, product, distribution and operations functions.

“All these actions are core to us achieving the commitment we made in December 2016 to reduce our gross operating costs by an annual run rate of at least 10%, or A$250 million pre-tax, by the end of FY19; and we are on track to achieve this,” Mr Harmer said.

IAG’s capital position as at 30 June 2017 was strong, with its Common Equity Tier 1 (CET1) ratio 1.09 against a target benchmark of 0.9-1.1. The Prescribed Capital Amount (PCA) multiple was 1.70, compared to a target range of 1.4-1.6.

As part of its broader capital management program, IAG is exploring additional reinsurance quota share opportunities with its counterparties which have the potential to further strengthen IAG's regulatory capital position.


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